[Click eStock] "Samsung Card, 2Q Net Profit Increased but Cost Burden Rises... Maintains 'Neutral'"

[Asia Economy Reporter Myunghwan Lee] Korea Investment & Securities announced on the 26th that it maintains a neutral investment opinion on Samsung Card. Although Samsung Card posted results exceeding market expectations in the second quarter of this year, the company faces increased cost burdens due to inflation.

Samsung Card's net profit for the second quarter of this year was 155.2 billion KRW. This figure surpasses Korea Investment & Securities' estimate by 1% and market expectations by 9%. The company analyzed that the lower-than-expected bad debt expenses by 19.8 billion KRW offset the operating income estimate, which was 22.2 billion KRW lower than expected.

By segment, the amount used for personal credit sales (Shinpan) increased by 18.2% compared to the same period last year. This was evaluated as a solid growth mainly driven by usage related to face-to-face service industries. On the other hand, the amount used for card loans decreased by 2%. Korea Investment & Securities attributed this to intensified operations targeting mid- to low-credit customers by internet banks and the strengthened Debt Service Ratio (DSR) regulations implemented earlier this year. However, it noted that the card loan balance itself showed a favorable trend, increasing by 7% compared to the same period last year.

The bad debt ratio fell by 0.17 percentage points year-on-year to 1.40%, indicating a continued favorable asset quality trend. The delinquency rate was 0.74%, down 0.11 percentage points from the previous quarter and 0.26 percentage points year-on-year. Korea Investment & Securities pointed out that additional provisions related to future economic outlook are expected to be set aside in the fourth quarter of this year.

Selling and administrative expenses amounted to 486.2 billion KRW, a 2% increase compared to the same period last year. Korea Investment & Securities estimated this was due to increased service and marketing costs as the amount used for face-to-face services, which offer relatively more consumer benefits, recovered.

Korea Investment & Securities explained that it maintains a neutral investment opinion due to the cost burden caused by inflation. It viewed the 10% range increase in Shinpan usage due to high inflation and the implementation of With-Corona policies as positive. However, it also noted that the increase in interest expenses, selling and administrative expenses, and bad debt expenses presents negative conditions.

Researcher Baek Doosan of Korea Investment & Securities stated, "Due to the increase in interest and bad debt expenses, net profit is expected to decrease by 13% year-on-year next year, weakening profit momentum," but added, "Both the absolute stock price and price-to-book ratio (PBR) are at historically low levels, and the expected dividend yield of 7.5% this year will act as a downside support for the stock price."